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The Bankers’ Association for Finance and Trade (Baft) has given the market an update on the take-up of the master trade loan agreement (MTLA), released in May this year.

The MTLA is for short-term, bank-to-bank trade loans, designed to help standardise definitions and documentation between institutions and to increase transparency within the market.

During a webinar, members of Baft’s trade loan documentation working group revealed to industry stakeholders and GTR that because of the MTLA’s broad scope and simple concept, some banks may find it difficult tailoring the agreement to transactions within the jurisdictions of individual countries.

“More than 70 financial institutions have so far drawn the document down under either US or English law,” said one spokesperson. “A lot of the feedback we received from financial institutions was country-specific and clause-for-clause.”

“Some had questions about certain clauses and how they would work in their jurisdictions,” said another spokesperson: a banker. “We tried to incorporate what we felt was generic feedback within the MTLA, and the feedback that was too country specific: we know that it will have to be resolved on a case-by-case basis.”

But according to the working group there has been a broad consensus for the initiative. “There is no problem amongst banks with the concept of the MTLA,” said the banker. “They were very supportive of a master framework – a standardisation model – thinking it will make things more workable and consistent for the banking industry.”

Since June 2012, 15 large global member banks have been actively participating in the Baft working group, covering wide experience in different markets. The working group also consulted borrowing banks from countries including Brazil, Colombia, China, India, Russia and Turkey to ensure some alignment with current market practice and to improve future universal acceptance of the MTLA.

The MTLA template has been developed in both English and New York law formats, but group members acknowledge that the MTLA’s underlying provisions may need to be altered by institutions depending on their specific needs.

“We realised we wouldn’t be able to produce a document that was perfect for every institution, all of the time,” said one spokesperson, a lawyer who oversaw the drafting of the English law MTLA template. “It may be that there are certain provisions that need to be added or amended.”

Added the lawyer: “The idea is that parties will sign one master document, and then each individual trade will be covered by a trade loan request, and that request will be set out as an appendix at the end of the document. The master will stay in force until either of the parties chose to terminate it.”

The MTLA is designed to be as simple and as short as possible to ensure a wider uptake. There is no commitment on behalf of a lender to accept a trade loan request from a borrowing bank, and there is an undertaking included in the wording not to change an underlying trade transaction without a lender’s consent.

A sanctions clause is included in the MTLA, but the working group recognises that it may not be accepted by all. “Different institutions have various opinions of what would be appropriate for sanctions clauses,” says the lawyer. “Our clause will work for some but not for others. For example, we know that German banks will not be able to use the clause because the regulatory regime is different.”

Baft hopes that uptake of the MTLA will be as successful as that of its master participation agreement (MPA), now widely used by banks and counterparties to facilitate the buying and selling of country and bank finance-related risk worldwide.

Commenting on the MTLA, vice-president at JP Morgan and a key member of the Baft working group, Henry Pfeiffer, says: “This initiative helps provide uniformity to the product by clarifying definitions and making the entire trade process more transparent.”